Do We Know Enough About Economics?

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Young people in our country need to know that economic education
is not an option. Economic literacy is a vital skill, just as vital
as reading literacy.

—Robert F. Duvall
President and CEO
National Council on Economic Education

Dennis Flanagan, former long-time editor of Scientific American,
tells of once meeting the famous movie critic for The New
Yorker, Pauline Kael. After introducing themselves, Kael
admitted to Flanagan that she knew "absolutely nothing" about science,
and Flanagan responded: "What ever became of the idea that an educated
person is supposed to know a little something about everything?"

Kael was not amused.

And really, who can blame her? Nobody likes to be called to task
about a deficiency in knowledge in a particular area, especially
by someone who has a deeper understanding than she possesses. Not
that Flanagan shares this trait, but there is often a certain smugness
surrounding the "expert" in a particular field who believes that
everyone else should know and care about what he knows and cares
about. One can imagine Flanagan later meeting an economist and having
to confess his ignorance of the dismal science, and the economist
then meeting a geologist, who encounters an artist, and so on. Each
is accomplished in his own right and may even consider himself something
of a Renaissance Man, yet each is likely perceived by the other
as somehow deficient.

So I have empathy for the reader who opens this special issue
of The Region and who may feel a bit like Pauline Kael.
As you probably have noticed by now, we have departed from the normal
format of this magazine to devote its pages to one subject: economic
literacy. And this means that you are about to be told by a number
of experts that you (or at least the American people, generally
speaking) don't know enough about economics and that you should
know more. Are weas economists, policymakers and educatorsjust
being smug? I hope not.

Here at the Federal Reserve Bank of Minneapolis we believe that
knowledge of economics is important. To that end, this bank (along
with other Federal Reserve banks) conducts workshops, provides printed
material, develops curricula, sponsors essay contests, hosts meetings,
constructs Web sites and so on, all with limited budgets and all
with the intention of improving economic literacy. In addition,
this bank will hostin partnership with Minnesota Public Radioa
national symposium on economic literacy in spring 1999, the results
of which will be published in this magazine. In other words, you
haven't heard the last about economic literacy.

Why all the fuss? Two reasons: First, from a parochial point of
view, few understand the role of the Federal Reserve in monetary
policy, bank regulation or in the services provided to financial
institutions; even worse, some have rather bizarre notions of their
central bank.

Second, and perhaps more importantly, economic literacy is crucial
because it is a measure of whether people understand the forces
that significantly affect the quality of their lives. Now, I'm not
going to overstate that claim. The argument can be made that despite
this country's apparent ignorance about economics, the economy is
still doing quite well and will likely continue to do so. Michael
Watts of Purdue writes in these pages that much of economic literacy
is "learned the hard way, by trial and error," and he calls such
experience a "hard teacher." I think I would amend that statement
to suggest that experience is a good teacher. We learn a
lot from merely participating in the economy. Adam Smith knew that
because of the efficacy of markets, the invisible hand works regardless
of whether people know about it. There may be some irony in that
regard for economic educators, but even sotheir task is no
less important. As Watts and others note, knowledge of how an economy
works helps people function more effectively as consumers, savers,
investors, workers and voters; the same could arguably not be said
about the study of biology or ballet, although I recognize that
such study brings value of its own.

Every science, every academic disciplinefrom art to zoologythinks
itself crucial. Economics is no exception. But we should recognize
the significance of economic study. You cannot fully understand
history without understanding economics. You cannot understand politics
and other social sciencesin other words, how the world workswithout
understanding economics. And you cannot make an informed choice
when you walk into the voting booth. This is not to set one field
of study against another, but to acknowledge that economics should
be given its due in the classroom.

I invite you to peruse this
issue of The Region and consider the issues raised
about the meaning of, and the need for, economic literacy. You will
find an article titled "Why Johnny Can't Choose,"
which describes the economic fundamentals that U.S. citizens need
to understandas defined by this bank. Following that article,
you will find the results of our national survey
on economic literacy, which tested respondents' knowledge of
those economic fundamentals. The average score for the survey was
45 percent, which in my estimation is not too bad, but whether you
see the results as a glass half empty or half full, there is still
clearly room for improvement. Additionally in this magazine, there
are seven papers from experts in the field of economic education
and a discussion of economics textbooks and pedagogy, and other
articles and information pertinent to economic literacy.

In the end, you may not agree with everything you readdisagreement
is no stranger to the economics academybut I hope you come away
with either a new or renewed sense of the importance of economic literacy.
At the very least, I hope you come to understand what Bob Duvall means
when he says that economic literacy is not an afterthought; rather, economic
literacy is a skill necessary to function effectively in society. Whether
economic literacy is as important as reading literacy, as Bob suggests,
is a question that would likely garner debate; and so would questions
regarding how economics should be taught, what other subjects should be
cut to make room for economics, and a host of other queries. That's the
purpose of this magazine and the subsequent symposium, to raise questions
and issue challenges. We'll keep you posted.